Today’s Jobs Report & The Current Expansion

By January 6, 2006Economy

Good Friday to everyone. Let me introduce myself. My name is Dave Huether. I am the chief economist here at the NAM and I have joined the NAM blogging team. Whenever I find the “invisible hand” move me, I plan opining on the “dismal science” in an effort to get past what the talking heads are saying and tell you what is really going on in our economy.

Which leads me to today’s job report, released today by the Labor Department. The economy created just 108,000 jobs in December. For the year overall, over 2 million jobs were added – not too shabby considering the turmoil caused by last year’s hurricane season.

More broadly, how should we characterize the current expansion? The Democrats call for a need to “jump-start our economy” while the President calls the recovery “steady and strong“. So which is it?

Here is what’s really going on: Since the recession ended in November 2001, the economy has expanded over 15 quarters. During the first six quarters of recovery (through the first half of 2003), when the economy was plagued by accounting scandals and heightened insecurity as our country entered into new a war on terror, GDP growth averaged a dismal 2.2 percent – marking the slowest start to an economic recovery in 30 years.

However, thanks to well-timed tax cuts — which stimulated domestic growth — and a pickup in exports, the economy has rebounded smartly, with GDP growth averaging a robust 4.1 percent over the past 9 quarters – beating the pace of 2 of the prior 3 recoveries.

Tying it all together, the U.S. economy has increased by 13 percent over the past 15 quarters since the end of the 2001 recession. This is virtually identical to the 12.9 percent rise during the initial 15 quarters of recovery following the 1991 recession.

So while current expansion has not been as robust as the more cyclical recoveries following the deeper recessions in the 1970s and 1980s, calling for a jump start at this point ignores the fact that the expansion has been cruising a very solid speed over the past several years.

If you want to know what is in store for 2006, check out my forecast.